Thursday, June 5, 2014

EES: Euro goes negative on deposit rate

For some, today a surprise move from the ECB making the Euro the first major currency with a negative deposit rate.  Mario Draghi reduced the deposit rate to -.10 pc from zero - meaning that instead of receiving interest for depositing Euros you pay - and slowly your account is drained to nothing (although at this rate it would take 1000 years, not considering compounding.

The European Central Bank cut its deposit rate below zero and said it would announce further measures later today as policy makers try to counter the prospect of deflation in the world’s second-largest economy.
ECB President Mario Draghi reduced the deposit rate to minus 0.10 percent from zero, making the institution the world’s first major central bank to use a negative rate. Policy makers also lowered the benchmark rate to 0.15 percent from 0.25 percent. Draghi will hold a press conference at 2:30 p.m. in Frankfurt.

According to the above EUR/USD daily chart, traders reacted mildly considering the EUR/USD recent drop from 1.40 highs.  The bigger question, if this downtrend will hold 1.34/1.35 support here, defining a range as appears in the chart.